If you are sued by a creditor and the creditor obtains a judgment against you, that judgment automatically becomes a lien on any real property (house, condo, or land) that is located in the county for which the judgment was entered. For example, if you are sued in Lane County and you also own a house in Lane County, the resulting judgment from the lawsuit would also become a lien on your real property. The judgment creditor could also file what is known as a lien abstract in other counties in Oregon, and if you own property in such a county, then the creditor will obtain a judgment lien against that property also. Judgment liens are not created, however, by small claims judgments of $3,000 or less.
So, now you have a judgment against you, and the judgment has become a lien on your real property – What can you do? By filing bankruptcy, you will be released of any personal liability under the judgment (provided it is a civil judgment), but your property will still have the lien attached. But if the property is your homestead (the place where you live), under certain circumstances you can strip the judicial lien(s).
In order to strip a judicial lien in your homestead, first you must live at the property to qualify for a homestead. Second, you must file bankruptcy, chapter 7 or 13. Third, the lien must impair your homestead exemption (Under Oregon: $40,000 for individual, $50,000 for married couple filing; Under Federal: $22,500 for individual, $45,000 for married couple filing). Therefore, if you have a house worth $200,000, and you owe $170,000 against it with a mortgage, this renders $30,000 in equity, which is less than the $40,000 (individual) or $50,000 (married couple) homestead protection amount – and therefore, since the lien impairs your homestead, you would be able to avoid it in bankruptcy. If you choose Federal homestead, the lien would have to impair the individual homestead exemption of $22,500 if filing alone, or $45,000 if filing jointly.
Stripping judicial liens can be a complicated matter, and requires additional work in your bankruptcy.
If you are interested in finding out more about bankruptcy and judgment-liens, please contact me for a free in-office consultation.